Thursday, November 17, 2011

One of the things not helping the shocking reputation we finance and economics types have is the use of idiotic language coupled with totally deceptive phraseology.

My latest discovery is the term “high equity content” to describe risky bonds – hitherto known as “high yield bonds” or “junk bonds”.

This curiousity arises from the fact that when a bond has a high probability of default the chances of getting ones money back depend upon what’s left, if anything, of the issuing firm’s assets and earnings – i.e. the stuff of equity (not bonds) and equity analysts – so to assess these instruments takes equity analysis skills rather than the standard fare of credit analysts looking at gilts or low risk bonds.

The most important thing is that risk here is high! Disguising that or being deceptive about it by calling it “high equity content” is silly, condescending and deceptive. High risk bond – is the term the salesmen are struggling for.

In this case it is a new issue by Contact Energy – the ridiculous thing being that they have no need to resort to this rubbish. Investors are perfectly capable of figuring whether this level of risk is for them.

High equity content? Presumably the EU currently has “high equity content?” South Canterbury Finance bonds had “high equity content”?

This rubbery nonsense indicates rubbery intellect – the very same which describes company results as having “no unexpected surprises”. Right? So all surprises were fully expected. Good. Just as the risky option for Kiwislaver sufferers is described as “growth” instead of “most risky of the options”.

After a certain pretty bad day on Wall Street in 1929 JP Morgan’s side kick when asked about the state of the market declared that the market was “susceptible to price increases”.

Cleaning up our language might go some way to cleaning up our industry’s reputation – and possible clear out a few souls who are “susceptible to a brain transplant.”

Friday, November 11, 2011

Why on earth can Mr Key the National Government not bring itself to say:

Mr Goff and the Labour Party are simply wrong about this. For the last 20 years, all over the world, in governments of left, centre and right wing disposition and from Poland to Africa to the United Kingdom and to Australia, have progressively sold the last of their state owned assets to their citizens’ benefit.

They have done this, as ironically Mr Goff’s own government did in the 1980s, because governments end up being consistently poor stewards of those assets compared with others and because taxpayers do not “own” the assets in any meaningful sense.

Like everyone else, it behoves us to capture at least some of the value that partial sale will bring while that value remains intact. The sales process will also deliver us whatever value might arise in the future – through how this utterly basic piece of finance works eludes Mr Goff and his colleagues.

We no longer have the time to rehearse arguments which have no policy content and were settled long ago – there are more pressing matters to be addressed.

Telling it like it is would make more sense than conjuring up dreamboat slush funds or promising to gamble asset sale proceeds in state owned banks.

Tuesday, November 1, 2011

Why would one take the proceeds from selling down state owned energy assets so as to reduce taxpayer risk, and promptly invest them in a state sponsored bank which is far more risky than any energy company?

Selling state assets is important for numerous reasons but it uses up valuable political capital in N.Z. Squandering the opportunity by straight away locking up the proceeds in an even more risky endeavour (established at the behest of a one man party conspiracy theory), shows just how shockingly low on investment prowess governments and even the normally sensible Bill English are.

It is, of course, precisely because of this sort of sheer brilliance that we ought to sell the state out of the country’s valuable assets.